Look Beyond Orbitz/AA: Delta Pulls Inventory Off Three Other OTAs

The current fight between American Airlines (AA) and Orbitz Worldwide (OWW) and Travelport by default has been well publicized. In a nutshell, after winning a hearing in court yesterday, AA canceled Orbitz' ability to sell tickets on the Orbitz family of websites including Orbitz.com, Cheaptickets.com and ebookers.com. The dispute revolves around how AA distributes inventory to Orbitz, both financially and technically.

To date, AA has been a lone wolf in this area with scant public support from any other airlines. Unlike in many other airline moves where one moves on Tuesday and the rest of the industry follows by Friday (think commission caps, bag fees, change fees etc) AA has stood alone.

Until yesterday.

In an amazing coincidence, Delta Air Lines (DL) yesterday announced that they would pull their inventory off of three smaller OTAs: cheapoair.com, onetravel.com and bookit.com.

Delta has made it clear that they value some distribution points more than others. These three websites generate a significant amount of traffic from meta and click-off search sites such as fly.com, bookingbuddy.com and tripadvisor.com - we can imagine that Delta probably tired of seeing these smaller, less relevant websites listed alongside Delta.com (and other, larger OTAs) as a booking option.

By flexing their distribution muscle and removing inventory from these sites, Delta is making a calculated move that they will be able to continue to sell the inventory currently sold through these websites elsewhere, and in particular, Delta.com.

We would bet doughnuts to dollars (just by the URL names alone) that the vast majority of tickets sold through these sites are low-yield tickets. As anyone in the airline business knows, airlines don't need help selling more $39 tickets to Orlando. There is nearly insatiable demand for low-fare tickets and consumers visit multiple websites in the hunt for these fares - Delta is banking that consumers will still find their low fares elsewhere, and hopefully that will be Delta.com.

And, if those same consumers don't visit Delta.com (or another OTA) there are plenty of other consumers who will those same cheap fares - airlines can fill planes all day long with $39 fares without any help from an OTA.

New Front on the Old Hotel Chains vs. OTAs Battle: Occupancy Taxes

It appears that a new front is opening in the ever tumultuous relationships between the large hotel chains and the online travel agencies (OTAs).

The major OTAs are currently pressing for legislative relief for future occupancy tax claims by states, counties and municipalities through a proposed bill known as the "Internet Travel Tax Fairness Act" or ITTFA. For those of you interested in a reprise of the old Schoolhouse Rock Saturday morning "how does a bill become law" cartoon, the initial draft of the bill is posted here

Interestingly, the American Hotel and Lodging Association's (AHLA) take on the bill is radically different from that of other smaller, regional hotel associations.

AHLA, which represents all the large chains, has come out as a vigorous opponent of this bill to say the least. AHLA offers a detailed description of their opposition to this bill which is centered on concerns that local hoteliers will see an increase in taxes or, worse yet, be stuck with the entire tax bill. As an aside, AHLA offers that the bill is "written in such a way that it may also exempt the payment of any occupancy tax on rooms booked through online travel companies." We don't believe this is the actual intent of this bill by the OTAs (call us naive, but this simply does not square with what the OTAs are trying to accomplish) whether you agree with that goal or not.

On the other hand, the California Lodging Industry Association (CLIA,) which represents "individually owned lodging properties," has just come out in favor of ITTFA. In a recent press release, CLIA declared that they would fight "with their Online Travel Company friends" to support this legislation.

So, why the disparity in thinking within the hotel industry?

For starters, independent hotels utilize the OTAs in very different ways from the large chains. Independent hotels do not (generally) have the powerful global brand recognition of the large chains much less the global sales forces and loyalty programs such as Hilton HHonors, Marriott Rewards and SPG. As such, they depend on the OTAs for distribution reach - reaching consumers that would not have ever probably stayed with these unaffiliated properties.

Many independent hotels have become much more aggressive in developing their own consumer web business, both directly and via the OTAs. New tools that distribute inventory, develop and implement SEO and SEM strategies, etc. have made these efforts much easier for small hoteliers. The web has become a great equalizer between branded and un-branded hoteliers' ability to reach consumers.

The chains have responded by offering their distribution services for hire - witness the launch of the Autograph brand from Marriott and the resurgence of Starwood's Luxury Collection. HC colleague George Roukas highlights these efforts and the reasons behind them here in a recent article in Hospitality Upgrade magazine.

It will be interesting to see where this bill ends up - the stakes are high.

Irony - San Diego CVB: Expedia "Partner of the Year" While City Sues Expedia Over Occ Taxes

Expedia Media Solutions (the media arm of Expedia Inc.) yesterday announced that the San Diego Convention and Visitors Bureau had named Expedia.com "Partner of the Year." According to the press release, the San Diego CVB was recognized as "a top advertising partner and major sales channel for San Diego hotels."

The press release continues:

"'As a promotion partner, Expedia not only grew San Diego's room nights year-over-year by 26 percent, but in these tough economic times they were able to grow revenue by 11 percent – exceeding ROI estimates and generating a significant return on investment of 125 to 1,' said Joe Terzi, President and CEO of the San Diego CVB. 'Serving many different consumer segments—from families booking a summer vacation to individuals arranging a quick weekend getaway—Expedia gives us a highly effective way to share San Diego's message to a broad audience of travel shoppers and potential visitors.' "

Hmmm. Interesting that the CVB is so enthusiastic given that the City of San Diego is one of the many municipalities currently suing Expedia and the other major online travel agents. An administrative hearing has been held on the case but before any decision was rendered, the Judge in the similar Anaheim case rendered her opinion in favor of the the OTAs.

And just how does the San Diego CVB receive most of its funding? You guessed it, occupancy taxes. According to the CVB's own website, "the majority of funding is derived from San Diego Tourism District Assessment Funds." Again from the CVB's own website, the current transient occupancy tax is 10.5% in the City of San Diego. There is also an additional 2% occupancy tax levied for the San Diego Tourism Marketing District. If you enjoy reading tax code, here is the actual language from the City of San Diego's municipal code.

Anyone who has been following the ongoing saga of the tax lawsuits against the OTAs knows that the issue is if the taxes above are levied on the net or wholesale rate actually charged by the hotel to the OTA or the marked-up, retail rate sold by the OTA.

So now we have an interesting situation: The very agency (the CVB) charged with promoting San Diego (whose funding comes from the occupancy taxes in question) is holding out an OTA (Expedia) as a great partner. At at the same time the city of San Diego is suing Expedia et al for non-payment of occupancy taxes that largely fund the CVB!

So, San Diego (and other cities) which is it?

Orbitz Re-Tunes the Flight Matrix

In the first significant change to the Orbitz flight results matrix in as long as we can remember, Orbitz has taken a less is more approach.

Traditionally, Orbitz has returned a myriad of flight options using the power of ITA to build numerous multi-carrier and multi-leg trips. While flights from New York to Boston via Buffalo may have been not only scenic but cheaper (and resulted in a few extra frequent-flyer miles) the results may have been overwhelming for some consumers.

Orbitz, at least in certain market/fare combinations, has now changed the display to initially reflect only nonstop pricing:

The result is a faster return of the most relevant flights. Messaging allows users to drill down deeper into additional flights should they care to explore other options:
Orbitz CEO Barney Harford commented via email that the new format was part of "a relentless focus on speed" for the site. He continued, "The rest of the site is also getting a lot faster, but it is not as immediately recognizable; this is a very visible example."

Ctrip and Home Inns: How Different China Really Is

Just heard Ctrip CFO Jane Jie Sun speak here at the Goldman Sachs Technology and Internet Conference in San Francisco.

Obviously, as we all know, Ctrip has been growing like crazy and sees lots of room to continue those numbers - and for good reason. A few snippets in no particular order:

• Only 2% of travel in China is booked online today - and Ctrip has 50% of that market

• 80% of air travel is sold by agents - and airlines are generally happy with this "outsourced" distribution model
  

• High speed rail presents a minimal threat because main stations are located far from the city center, stations themselves have few amenities and the trade-off just isn't there yet on a time or money basis

• In fact, CTrip sees rail as a growth opportunity - not from selling train tickets but from selling more hotels as rail travel increases

• Ctrip feels that at least 50% of hoteliers would pay more than the average 15% commission they currently ask for but Ctrip believes this is poor for the long-term partnership

• The Shanghai World Expo is expected to be very positive because, unlike the Olympics, it is a six-month long event. The Olympics were so concentrated that many people stopped traveling to Beijing. The opposite is expected for the World Expo - business travel will continue into Shanghai and Ctrip expects large amounts of domestic tourism, particularly families with children to visit during the Expo.

• The Chinese government in general "likes travel" and has designated travel as a "pillar of economic growth" which is always nice

But the biggest take away, however, was her discussion of Ctrip's recent investment in lodging operator Home Inns. If you are not familiar with Home Inn, you should be - they operate nearly 600 moderate hotels in China.

She said the investment has allowed Ctrip to gain access to deeper inventory and that Ctrip and Home Inns are in the early stages of connecting their systems to allow electronic distribution. She also mentioned that she saw this reservations connectivity and inventory management as a catalyst for other domestics chains - as Home Inns goes, so goes the industry.

We've known that business in China is different for a long time, but can you imagine if Expedia was to invest in Intercontinental Hotels? Or Choice? Even back when Cendant owned Wyndham and Orbitz/Cheaptickets etc, many in the supplier community thought that back door dealings were probably going on. (I've been since assured that Cendant was way too dysfunctional for that to actually happen.)

It will be interesting to watch how this relationship develops - but I'm not looking for it to be replicated here anytime soon.

Orbitz For Travel Agents Pays 10% Commissions

Orbitz has launched a new platform for traditional travel agents which enables them to book stand-alone hotel rooms as well as vacation packages. This matches (for hotel only anyway) agentaccess, a program which hotels.com has offered to the agency community for some time.

The Orbitz for Agents platform offers a 10% commission to agents on stand-alone hotel bookings and 4% on packages which include air and hotel or car and hotel.

And, in an effort to sign up agents, the first 500 agents to register will be paid 12% commissions.

So now we have Orbitz, partially owned by Travelport, pushing agents to book outside of the GDS. And Orbitz is offering a strong economic incentive (at least for the 1st 500 agents) to do so. But will agents abandon their beloved green screens in large numbers? I doubt it - but plenty of small, independent agents may be interested.

And what of suppliers? It gives you some clue as to the level of margins Orbitz (and Hotels.com) are able to extract from hotels if they are able to not only match the industry standard 10% rate but still cover the other costs associated with the merchant model (e.g. credit card fees, fraud, customer care etc) which are normally borne by hoteliers under the agency model.

And it is a good move for Orbitz. Orbitz has a choice to drive incremental bookings - they can pay an agency 10% or Google. Stands to reason they already pay Google enough so this is an interesting way of lowering reliance on paid search.

Orbitz does allow for agents to add their own service fees - could this be the distribution model of the future in the hotel industry much as it has become the standard for airlines? Wait and see..

OTAs Prevail Against Anaheim: Court Calls Prior Rulings "Logical Fallacy"

The major Online Travel Agencies today notched a huge win in Anaheim, California where a judge threw out a $21,326,881.30 ruling against Expedia, Travelocity, Priceline, Orbitz and their related subsidiaries with a strongly worded rebuke to the Anaheim City Hearing Officer's earlier findings.

This case was originally heard by the City's Hearing Officer who made the determination that the OTAs did, in fact, operate hotels under Anaheim's definition. The Hearing Officer originally found that each OTA is both "the proprietor" and the "managing agent" of every hotel in the City of Anaheim. Wow. As such, the Hearing Officer found that the OTAs owed the princely sum of ~$21M covering back taxes, fines, interest and, no doubt, extra donuts for the office.

We'll get the whole decision up shortly for reading on your next flight but here are the highlights:
The big take away is that the judge who decided this case will also be presiding over several other similar cases currently in various stages of litigation in California. These include cases in Los Angeles, San Diego and a particularly nasty one in San Francisco where the OTAs have already paid significant damages in order to even have the right of appeal under the City's "Pay to Play" rules. (Note: Anaheim had this rule as well but the OTAs were able to get it overturned.) While no one can predict how a judge will rule and each case is obviously different, this judge clearly understands the issues at hand.


The ruling states "OTCs do not control and run hotels. The Hearing Office's factual findings list several functions performed by OTCs with the respect to resale of hotel rooms" including marketing functions, determining mark-ups etc. The Court correctly determined that "none of these facts comprise incidents of control of a hotel or give the OTCs the right to run the business of a hotel. The hotel control the production of the product sold, the quality of production, the channels of distribution of the product and the pricing of the product." This discussion of Marketing 101 and the " Four Ps" reminds me of my first marketing class in college - sounds as if the Judge may have taken a similar class along the way.

In one of the stronger worded sections, the judge concludes that the Hearing Office that it is "a logical fallacy to conclude, as the Hearing Officer apparently did, that because a hotel operator is responsible for collecting rent and taxes from [guests], any entity that collects rent and taxes from a [guest] must be an operator [and be liable for the occupancy tax] " The footnote explains it more clearly still: "Principles of formal logic demonstrate that when the statement 'if A then B' is a true statement, it is incorrect to conclude that the converse 'if B then A' must be true. Yet the Hearing Officer accepted this reasoning." Ouch. Basic logic, right?

However, the judge clearly leaves the door open for the City to base an occupancy tax on the total amount paid by the guest for the hotel room if the law was drafted (as New York City has attempted to do) and constructed to facilitate such a tax. "There seems to be no reason why such a tax scheme could not be drafted and considered." But before Anaheim goes off to re-do the tax wording, consider the Courts further discussion in regards to the City's position that times had changed (with the advent of the merchant model) and that the taxation laws should simply morph to fit the times: "where a taxing agency has not anticipated a new revenue opportunity, the court may not act to fill what might be perceived as a 'gap' in tax coverage. Creation of a larger tax rate or larger tax base requires voter approval pursuant to Proposition 218. California Proposition 218 states that "A taxing methodology must be frozen in time until the electorate approves higher taxes"

This ruling came down to carefully interpreting the current tax laws on the books. Clearly, opportunities exist for taxing authorities to adjust those laws (at least outside of California) to change with the times - but a go-forward tax is a far cry from a huge retroactive tax from the OTA's perspective.

Jetsetter Speaks Out at HEDNA on Marketing and Distribution

Jetsetter CEO Drew Patterson was a panelist at this week's HEDNA convention in Las Vegas and had some great insights into marketing, distribution and revenue management.

Drew began his remarks with an observations that what is really missing in the online travel industry today is inspiration. Paraphrasing, the major OTAs are not really about exciting people to travel or getting them to book an incremental trip - they are largely order takers. (My words, not Drew's!)

Drew's comments are similar (but not as blunt) to Harrah's CEO and President Gary Loveman's remarks at this year's PhoCusWright conference during which he lamented that the OTA industry has done little to actually drive tourism and increase trips - most energy (in his opinion) is spent on beating up one another (OTA vs. OTA as well as OTA vs. supplier) vs. actually driving and inspiring consumers to travel (and stay in his hotels, obviously.)

Drew also commented on the often difficult relationship between Revenue Management and Marketing within the hotel industry. In Drew's words, "RM and marketing have to work in partnership to stimulate activity. Lowering rates without communicating the price change just dilutes an existing customer base. At the same time, marketing communication without value or a reason is a waste of money because consumers will see through it. The two have to be integrated to have an impact." Sage advice for hoteliers and distribution partners.

Clearly, Jetsetter aims to solve for these issues, but they alone can't be the total answer for what ails the industry today. (Drew has big plans but it is a big world out there.) Will anyone step up in 2010?

Expedia drops phone booking fees

Expedia announced today that they are removing booking/service fees on all travel products sold through Expedia's call centers.

From an airline perspective, the move is interesting in that it will now be cheaper for consumers to book with an OTA then calling the carrier directly. (Except, of course, for Southwest which does not charge extra for a call center booking but they don't participate in the OTAs anyway.) The move is another example of how the OTAs have continued to differentiate themselves from the suppliers in terms of service, functionality and price. The list of enhancements the OTAs have made this year is long and compelling and great for consumers. Just to tick off a few: Orbitz TLC, Orbitz Price Assurance, Expedia's SeatGuru reviews, Priceline's iPhone app all come to mind.

And what of the timing, by the way? Interesting that Expedia announced this change the same morning as Orbitz announced earnings - particularly when Orbitz had this say in their statement: "This net revenue decline was due primarily to the removal of most air booking fees and the significant reduction of hotel booking fees on the company's domestic websites, as well as a decline in average hotel room rates globally."

Today's move by Expedia along with the OTAs' other enhancements this year should be a wake-up call for suppliers - Airlines and hoteliers cannot continue to sit still while they are out-innovated by the distributors. Piling on more fees or other dis-incentives for booking through specific channels only further harms the supplier's brand and the overall customer experience. Suppliers, wake up!

Texas Cities vs. PCLN, EXPE, OWW et al: A Draw at Best

Late last week, a jury in San Antonio delivered a verdict on a class-action suit against the major OTAs that was brought by around 170 cities in Texas. The verdict against Expedia, Orbitz, Travelocity and Priceline is for $20M plus court imposed penalties and interest.

While this sounds dire, (and if you read the lawyers press release you would think this was a slam-dunk) a detailed analysis beyond the headlines should give the edge to the OTAs. Why?

First of all, the jury rejected the municipalities' claims that the OTAs willfully pocketed tax dollars that were collected (as taxes) from consumers. This precedent setting verdict finally makes it clear, once and for all, that the OTAs are not collecting taxes and pocketing it - a position that many of the other lawsuits have taken and one that was sure to ring true with juries, particularly in this day and age. The "tax and pocket" position was a highly emotional stance that anyone who truly understand the true economics of the merchant model would obviously reject. Yes, taxes and fees have long been bundled together but the spirit and goal was clearly not to defraud consumers or rob cities and towns of tax dollars - the intent was to protect the underlying contractual agreements around margins.

Secondly, the jury rejected punitive damages against the OTAs because they agreed that the OTAs were not, in fact, pocketing tax revenues. Obviously, this is a no-brainer.

Interestingly, the jury did find that the OTAs "control hotels" and therefore are required to remit the occupancy taxes required by hotel operators. Knowing more than a few hotel General Managers, I can't imagine a statement that would boil their blood faster (except, maybe to say that "corporate" controlled their house!) than to say an OTA controlled the hotel. By now, everyone knows that hotels set pricing, inventory, discounts and room allocations either on the fly or during negotiations with the OTAs. The OTAs then re-market those rooms that have been offered to them to sell. This is hardly control. Furthermore, the hotel is clearly in control of the guest experience - after all, it is the hotel that decides which rooms to allocate to specific guests and who to "walk" when things go wrong.

Lastly, we believe the jury's definition of "control" may expand well beyond the OTAs. Put in the context of the ruling, traditional tour operators control rooms as well. Traditional tour operators (which pump a lot of rooms into Texas resort cities) have always paid the occupancy taxes based on the net rate of the room, not the gross selling rate. This has been going on long before the Internet and the OTAs came along.

Bottom line: if Expedia and the like are hiring, firing, allocating capital, negotiating with unions, customers, franchisers and managing to get the beds made and the bacon crisp, we'd agree that they control the hotel. Last I checked, these functions were not part of the OTA business model.

Orbitz new homepage - where's the love? TLC no more?

This morning Orbitz rolled out a new home page - gone are the jarring deep blues and oranges of the old site. Many of the changes are subtle but overall, it has a much cleaner look and feel. The site has also gained some heft with a new wider display - all the rage these days.

Most surprising is the total removal of the Orbitz TLC branding. TLC has been at the heart of the Orbitz brand for years and has been featured in all kinds of commercials and goodness knows how many airline in-flight magazines (no doubt where it was often viewed by someone who was on delayed flight that didn't book with Orbitz!)

We actually viewed TLC as a differentiator in the otherwise commoditized airline ticketing space - something that Orbitz had that even the airlines themselves couldn't match. But with Orbitz pushing hard on hotels, maybe it was decided that TLC needed to take a back seat. TLC isn't even listed under "Why book on Orbitz" on the home page. (TLC is still there, just reached from a rather boring link titled "Traveler Update")

Speaking of hotels, Orbitz is also taking an interesting approach with the chain hotels with direct link-offs to branded landing pages right off the home page - the first we've seen such prominent placement of Marriott, Starwood and the like on an OTA home page.

We also just noticed that hotel search results also have a new "sponsored listing" area at the top of each sort. Similar to Expedia's Google-esq listings, clicking on this advertisement brings you to a landing page for the specific hotel. Oddly, clicking on the ad brings you to a different landing page than clicking on the hotel in the regular sort order.
But what about that (new?) interstitial page between clicking on a hotel and getting to the booking page? Hmmmmm

Orbitz Adds "Street View" Google Content to Hotel Product

This morning, Orbitz launched new mapping functionality which leverages the highly acclaimed Google "Street View" product to give consumers a peek at the hotel before they buy. This is a great way for consumers to take a look (from an un-biased source like Google) at what the hotel actually looks like - curb appeal anyone? Finally, you'll be able to tell if a Starbucks really is "next door" or down the street a bit.

This is an interesting application of the Street View and much more interesting than the typical, basic mash-up of Google maps that several supplier.com sites (Hyatt and Starwood, for example - although Starwood has since removed it) have added lately.

Take a look at the Hilton Garden Inn Times Square:

Google isnt perfect, however - witness the view for the Waldorf=Astoria:

Talk about porte cochere! We may have just picked a bad example - many others worked just fine.

You'll have to look hard to find Street View - it is hidden in tiny letters on the upper right of the "map" tab. Once you find it, it is pretty cool.

Trip.com: Resurrection of a Brand as Orbitz Enters Multi-site Search Fray

Orbitz will shortly announce the re-birth of the Trip.com brand as a multi-site travel search engine akin to BookingBuddy.com, (an Expedia property) TripAdvisor (also owned by Expedia) Igougo, (a Travelocity property) and TravelZoo's Super Search product.

According to senior Orbitz executives we spoke with, Trip.com is an effort to continue to "maximize the revenue per visit" of "each customer that walks through Orbitz' front door." "Some consumers have indicated a strong preference for these types of comparison sites" and Orbitz will now offer visitors the choice of how to shop - an area "historically under served by Orbitz."

Orbitz is betting that offering consumers more choices in how they search and buy will lead to increased total revenues and better traffic efficiencies. Orbitz will now be able to convert visitors on either a transactional basis (by selling at Orbitz.com) or on a media basis (by referring to another site.)

Trip.com supports air, hotel, car, vacation packages and cruises and compares numerous sites including both meta sites (fly.com, bing.com and kayak.com) as well as traditional Online Travel Agencies (OTAs) such as Travelocity, Hotwire, Expedia and of course, Orbitz and Cheaptickets.

Thus far, the only supplier direct link is to IHG's Holiday Inn. Three reasons are probably driving the limited supplier direct presence. First, Trip.com has just launched (interestingly without a "beta" tag) so many relationships are probably not yet in place. Secondly, particularly on the hotel side, many suppliers do not currently have an API (a structured way for two systems to talk with each other) that is easily searchable. Finally, Orbitz indicated that "unlike other sites," Trip.com will not follow the "strategy of offering complementary link-offs" to supplier sites.

Trip.com does a really nice job of allowing the user to select multiple sites at the same time on the search page and search all at once vs. some competitors which force users to click each site one at a time.

Trip will be operated as part of Orbitz Worldwide's Away Network which includes Away.com, Gorp and Outsideonline.

NYC to OTAs: We Want Our Tax on Retail, Not Net

Just before the July 4th Holiday, Mayor Bloomberg signed Resolution 1012 which will, in theory, force the online travel agencies to collect New York City's occupancy tax on the full amount paid by consumers rather than the net amount that actually is remitted to the hotels.

The full text with changes underlined tax law is here.

With this law, the City has redefined the definition of the consideration paid for occupancy to include "any service fee and/or booking fees that are a condition of occupancy" in order to include OTA's margins.

They have also added a new term known as a "room remarketer" which, according to NYC, is "Any person, excluding the operator, having any right, access, ability or authority, through an internet transaction or any other means whatsoever, to offer, reserve, book, arrange for, remarket, distribute, broker, resell, or facilitate the transfer of rooms the occupancy of which is subject to tax under this chapter." At least the Online Travel Agencies are finally getting credit for what they do - marketing rooms.

And best of all is a new term known as "additional rent" which is the "excess of rent received from an occupant by a room remarketer over the net rent" In the OTA lexicon, this would be known as margin.

What is most interesting about this law is that the OTAs will be responsible for remitting their portion of the occupancy tax directly to the city. In the past, the OTAs have sent the tax on the net rate to the hotel which has then paid the city. Under the new law, the OTAs will be forced to directly remit the tax on the "additional rent" to the city.

The OTAs, spurred on by Orbitz, have already largely given up the practice of adding additional fees in with the taxes during the check-out process. However, this change will either force the OTAs to become non-competitive with hotel brand websites and pass along the additional taxes to the consumers or further erode the industry's margins.

A very simple example:
Rate on OTA.com: $100
Net Rate to OTA from hotel: $80
Tax rate: 10%

Today, OTA sells this room for $100 and remits $88 to cover the room and tax and earns $12.
In the new world, OTA.com will probably still sell this room for $100 to remain competitive with the hotel's own websites. However, the OTA will now be forced to pay the 10% on both margin and net rate. In our simpleton example, this OTA will now remit $90 and earn $10. Good for the City, not so good for the OTAs.

This new law takes effect on September 1st, 2009.

Travelocity and Orbitz match Expedia but Differences Remain and Orbitz Adds a Twist

So, today is June 1st and not surprisingly, Orbitz and Travelocity have fallen into line and matched Expedia's air booking fee removal which was announced last week. However, as usual in this game, plenty of nuances remain between the different sites.

For one thing, Orbitz and Travelocity have not eliminated *all* booking fees - they still charge them on multi-carrier itineraries and trip which originate outside the United States, Canada, Mexico and the Caribbean. So, intrepid travelers who use Travelocity or Orbitz to book a flight from Moscow to Minsk will still get hit with a booking fee on Orbitz and Travelocity. Similarly, let Orbitz or Travelocity find a great fare using American one way and Delta returning and you'll also get hit with a booking fee. Odd, because these kinds of tickets certainly don't cost either Orbitz or Travelocity more to sell or process than a regular old domestic ticket to Chicago.

(As an aside, Priceline does not sell international point of origin tickets)

Orbitz is still charging $30 (over and above anything the airlines charge) to cancel or change a ticket they sold. Priceline has not charged these fees for years and Expedia eliminated them last week when they announced they were removing booking fees for good. Travelocity also does not charge these fees.

Orbitz is showing another new feature for air consumers - it is a little hard to find, but Orbitz is now allowing bookers to cancel a ticket without penalties until 10PM CT the day after it was booked. This feature (which has been long available to traditional agents who are able to simply void tickets before they are fully reported to the airlines via ARC) is new to the online travel agency world. While the websites have always been able to do this, none have ever used it as a marketing tool. Several airlines (Delta, United come to mind) have similar features but this is one more example of Orbitz delivering more value to consumers. As just pointed out by Travelocity, they too offer this feature. Very cool but again, pretty well hidden - and it seems like a key differentiator from supplier sites.

And, if none of the OTAs are charging fees, do all the "fee chop," "no fees," and "booking fees eliminated" marketing messages really mean anything to anyone anymore? These are starting to sound a little like "Best Rate Gurantees"

Expedia Does Away With Air Booking Fees for Good and Drops Others as Well

As we predicted, Expedia today made the removal of air booking fees permanent, matching Priceline and sister site Hotwire's no-fee consumer proposition for the long-term. No word yet from Travelocity and Orbitz but we expect they will fall in line as well. Of note, Expedia has removed all air booking fees - Orbitz is still charging them on multi-airline and international tickets with originations outside of the US/Canada/Mexico/Caribbean.

In so doing, Expedia has removed one of the major obstacles to their continued growth in the domestic US markets - a $7 price differential vs. booking direct.

In addition, Expedia has also removed the annoying "ankle-biter" fees that they used to charge for changes, cancellations etc of air tickets, hotel rooms, cruises and rental cars. Sister site Hotels.com had already removed these fees on hotel room changes and cancels some time ago and Priceline began the trend. These fees were charged by Expedia and were over and above the fees that airlines or hotels charged for making changes or cancels. Rest assured, those fees still exist regardless of booking channel. Funny that as airline continue to race to add fees for everything from redeeming frequent flyer miles to checking bags that Expedia is heading in the opposite direction.

A critical missing element in the press release was any mention of the go-forward plan on hotel booking fees - something Expedia has never messaged to consumers - only to Wall Street. Orbitz is still running with a July 15th cut-off date for their reduced fee promotion on hotels but given Orbitz's site changes to highlight the "all-in" price, we doubt highly that they will back off come mid-July keeping the heat on Expedia and Travelocity. Priceline, of course, hasn't had any of these fees (air or hotel) for some time.....

Orbitz Extends Price Assurance to Hotels in Latest Chapter of OTA Battle Royale

This morning, Orbitz extended its Price Assurance program to hotels booked through the site. Price Assurance offers consumers a cash rebate if the hotel stay is booked by another Orbitz customer for the exact same dates and room category. This is true innovation from an OTA - no one else has a similar product save start-up Yapta.com

Orbitz claims the program has been highly effective on the air side in driving customers over the purchase hump. Clearly, Orbitz is expecting similar results on the hotel side, particularly when coupled with the hotel fee cuts promotion which is also underway.

Of note, there is a catch. Another consumer must actually book the exact same stay - if the hotel drops rates but no one else books the exact same stay (same check-in, check-out, room class etc) you are out of luck.

Price Assurance for hotels is likely to be far less costly for Orbitz than the similar version offered for air. Assuming a hotel drops the underlying net or merchant rate, (depending on Orbitz's contract) they may be able to rebook at the lower net rate and simply pass the difference back to the consumer. Even if the hotel does not allow a rebook, Orbitz can still probably pay a significant portion of the cash rebate back to the consumer out of the gross margin associated with that stay. On the air side, Orbitz is simply paying out cold hard cash - there is little, if any, chance to go back to the airlines and rebook at the lower price and, alas, there is very little gross margin on air...

Delta and Northwest Bring Back 500 Bonus Miles for Booking Online - Are the OTAs Finally Stealing Share Back from Supplier Sites?

Well, its been nearly six weeks since the OTA fee-removal frenzy began. As you will no doubt recall, The pre-fight (or should we say pre-flight) warm-up match was nearly two years ago when Priceline and Hotwire dropped air booking fees. In the Main Event, Round One, Expedia dropped air booking fees, then Travelocity quickly followed suit and Orbitz finally joined the party a week or so later. Round Two was kicked off when Orbitz dropped booking fees on hotels which was quickly matched by Expedia.

But now, the question is, is it working - are the OTAs actually grabbing growth back from the supplier sites?

Maybe so - Today, Delta (and Northwest) both returned to offering 500 mile booking bonuses on their websites - something we have not seen in nearly two years. The airlines (in their usual lock-step fashion) first lowered the bonus from 1000 miles to 500 and then eliminated them all together. It is billed as a temporary promotion so we'll see what happens. If the airlines operate as they usually do, we'll have bonus miles back at all the supplier sites by the end of the week. It could be just a broad attempt to stimulate bookings but we doubt it - the airlines have gotten much smarter in recent years in how they target demand stimulation offers - this is a broad swipe.

And why not? Given the new pricing parity, airlines have little else to offer other than websites that are generally sub-par when compared to the content, functionality and service offerings that the major OTAs have built out. Millions of consumers have paid $7 for these services for years - it goes to figure that even more would opt to buy from an OTA given price parity.

Comically, Delta's PR team seems to have missed out on a few of the changes in the OTA world given the first point they trumpet regarding booking at Delta.com is no booking fees. And the 2nd point is a best fare guarantee which still falls FAR short of the Orbitz offering.

OTAs offer many different airline choices, combinations of different carriers for the same trip which often results in a lower fare, money-saving air+hotel package products, often superior en-route service and, in the case of Orbitz, even assurance that if the price goes down, you'll get your money back - something no airline offers. Maybe the airlines have woken up - it looks like at least Delta and Northwest have...

OTA Slug Fest Continues: Expedia Removes Back-end Mark-ups Previously in "Taxes/Fees" to Match Orbitz

The OTA slug fest over booking fees continues today - Expedia has apparently (and quietly) stopped adding additional fees into the "taxes and fees" section as a result of Orbitz removing them yesterday. Expedia claimed to the press they would remain competitive and, indeed, they have.

Until now, while the "base" price of a hotel room on Orbitz, Travelocity and Expedia (and supplier sites) was usually the same, the OTAs often added additional fees into a murky line during the booking process labeled "taxes and fees." Consumers didnt pay much attention to these fees, assuming that they were not optional or a subject of competition. All that changed yesterday when Orbitz began breaking out the total all-in price on the first search results page - something even the hotel supplier sites don't currently do.

Yesterday, we shared the following price comparison which clearly showed the differences between the OTAs (and supplier sites) when the "all-in" price was compared:

Hilton.com $253.71
Orbitz.com $253.10
Priceline.com $253.76
Travelocity.com $262.46
Expedia.com $287.83
Hotels.com $287.83

Today, pricing seems to have equalized across the channels with Expedia coming in line with the competition. Consider the Paramount in New York for this Sunday night:

Paramount website $151.40
Orbitz.com $150.80
Expedia.com $150.07

(Note: Priceline was $299 and Travelocity was $160.33 showing the importance of shopping around - but that isn't the point here)

Or consider the same Hilton New York on Sunday, May 10th:

Hilton.com $162.31
Orbitz.com $161.94
Expedia.com $162.23

What is critical is that Expedia has effectively taken a hatchet to their margins. The difference could be as much as a 12 point drop in the Hilton example above. Clearly, Expedia is not about to cede share and is determined to remain competitive - the open question is what the effect will be on Expedia's hotel margins.

Next Round in the Online Travel Agency Fee Wars:: Orbitz Cuts Hotel Booking Fees

Orbitz fired off the latest salvo in the continuing war between the Online Travel Agents (OTAs) by removing the somewhat hidden booking fees that have pervaded the industry's merchant model. These booking fees have typically been included in the "second step" of the booking process after the consumer clicks on the rate at the hotel they wish to purchase. The fees have been bundled together with taxes in a single "taxes and fees" line without delineation to the consumer on which portion was/is taxes going to the government and which portion is fees going to the OTA.

This is a page right out of Priceline's play book but with a twist. PCLN eliminated the fees on non-opaque (meaning NOT name-your-own price reservations) several month ago under their "Fee Chop" moniker but only shows the "all-in" price when the consumer clicks to book. Orbitz, to their credit, is showing the full price, including taxes on the first page - something even Hilton.com does not do.

We sampled a room for tonight, Wednesday at the Hilton New York to see how the big OTAs and Hilton.com compared. As expected, every site we tested came back with the same initial price: $219. However, from there, prices diverged widely when the "all-in" price was compared:

Hilton.com $253.71
Orbitz.com $253.10
Priceline.com $253.76
Travelocity.com $262.46
Expedia.com $287.83
Hotels.com $287.83

Remember, these are the fully-loaded prices off the same $219 base room rate. Wow! Quite a difference indeed.

Obviously, Travelocity, Expedia and Hotels.com are adding some significant revenues under the guise of "taxes and fees" - often more fees than taxes!

Orbitz is clearly looking to strike Expedia and Travelocity where it hurts in their most profitable segment - hotels. The question is, will consumers notice? After all, all of the OTAs have had these "hidden" fees for years - with few complaints from consumers. All of the competition has been on the first page - ensuring that the first rate consumers see for a hotel is competitive.

And this is yet another "temporary" promotion - only for bookings made between now and July 15th. Will it last longer? Priceline's Fee Chop certainly has.

And there is still that little cancellation fee that Orbitz dings consumers for. Priceline and even Hotels.com have long removed the $25 cancellation fee they imposed above any fees the hotel itself might have charged. The $25 cancel fee lives on at Orbitz, Travelocity and Expedia. Will this be the next frontier in the race to be the most "consumer friendly OTA?"